Overnight and early this morning, the Russian stock market collapsed another 15 percent. The Russian ruble plunged to a fresh all-time low, bringing year-to-date losses against the dollar to a whopping 50 percent.

Thanks to that massive capital flight (and a further decline of more than $3 a barrel in global oil prices), the Russian central bank was forced to jack interest rates to 17 percent from 10.5 percent overnight. That was the single-biggest rate move since the Long-Term Capital Management crisis in 1998, which I told you all about yesterday. Currency markets got so volatile that retail brokers like FXCM (FXCM, Weiss Ratings: C) either halted trading in the ruble or hiked transaction costs.

The ruble’s fall has crossed the line from a headache to a full-blown crisis.

It wasn’t just Russia, either. Venezuelan bonds collapsed further. Middle Eastern and South American stock markets got rocked. Heck, punch up a chart of the iShares MSCI Mexico Capped ETF (EWW). You’ll see that it just dropped 12 straight days in a row — losing more than 16 percent in the process!

Let’s call a spade a spade here folks. It’s a global crash. But does it mean the U.S. market is doomed?

Well, the energy sector here has certainly gotten shellacked. The Energy Select Sector SPDR Fund (XLE) started the summer up around $101. It traded as low as $72.51 today — a 28 percent plunge in just a few months! Many smaller energy producers have fared even worse, losing 70 percent, 80 percent, or more of their value.

But the Dow Jones Industrial Average is down just 900 points or so from its recent high. That’s only around 5 percent. The U.S. economic data has remained fairly robust, even as emerging markets like Russia and Venezuela are tumbling into recession — and developed, foreign economies like Japan, China, and Europe remain weak.

And let’s face it: The pain is getting bad enough that it’s hard to imagine a policy response is far off. When it was just our enemies and countries that don’t like us very much who were suffering, that was one thing. But the carnage has clearly spread to friendlier nations (Thailand, Turkey, Mexico, etc.) and other sectors of the capital markets (non-energy junk bonds, currencies more broadly). These crazy moves are also occurring right before another Federal Reserve meeting.

Is it so hard to imagine an unscheduled oil production cut by OPEC, possibly coordinated with non-OPEC nations like Russia? A Fed-ECB-BOJ, coordinated asset market intervention of some sort? Policymakers coming out and saying they’ve had it with the relentless rise in the dollar, which is now clearly having negative impacts across the capital markets (rather than just on oil)?

“I’ve been nibbling on energy stocks and related investments into this waterfall decline.”

All of that is why I’ve been nibbling on energy stocks and related investments into this waterfall decline — on a wide scale and only gradually. Heck, I’m even starting to look at emerging market debt from an opportunistic standpoint. That’s after hating on it and slamming it for the better part of the past two years!

Bottom line: There are big risks out there right now … but also major opportunities in beaten-down sectors and investments. So definitely respect the former, while not forgetting the potential profits from the latter.

What about your take? Have we reached a capitulation point here, and does that make this a good time to buy emerging markets and energy investments? Or is there more pain to come?

Do you think Russian President Vladimir Putin will now pivot back to the West as a result of all the financial pressure? Or will he get even more adversarial? Is it time for yet another global financial bailout from the Fed and its counterparts overseas? Or will it stand aside and let the meltdown continue? You know the drill — use the Money and Markets website to weigh in during these incredibly volatile times.

Our Readers Speak

With volatility surging in the energy markets — and emerging markets in general — many of you shared your thoughts about what’s going on … and what to do about it!

Reader Fred S. weighed in on the geopolitics behind the moves we’re seeing, saying: “It’s a political and economic squeeze by the Saudis and their Sunni counterparts against the Shias of Iran and Iraq. Plus, they want to hurt Russia for its support of Assad. If their political and economic will holds up, it could cause severe damage to many world economies.

“Russia is already selling their dollar holdings and soon many more may follow. It doesn’t seem like Russia can pay for their imports. Putin will not stand idly by and watch his economy collapse. There are too many players and too many scenarios so beware.”

Reader Ken discussed the ramifications for the energy and debt markets, saying: “The major concern is the junk bond market and its potential collapse! Understand that 30 percent of current market is financing the oil/gas industry. I suspect if there is a collapse in oil finance issues, the carnage will be significant.

“What is the solution: Output reductions, OPEC, higher prices, certainly not higher interest rates? Or is the outcome the price to be paid as a result of the Fed activities, and allowing OPEC to control price levels? Perhaps if free markets were allowed to work, perhaps the problem may not exist!”

Speaking of the Fed, Reader Lewis D. said he hopes they stay the heck out of this situation. His take: “God forbid the Fed should leap into the breach and corrupt financial markets even more than it already has! The reason all those high yield energy bonds are floating around in the first place is the Fed’s zero interest rate policy has driven investors to extreme lengths to find yield.

“They shouldn’t have bailed out LTCM (which got into trouble with money borrowed too cheaply thanks to the Fed) in the first place. As you pointed out, the real U.S. economy wasn’t damaged at all, just the speculators. Unfortunately, the only game plan the Fed seems to have is repeating its own mistakes, except bigger with every iteration.”

Reader Steven picked up on that theme too, saying: “What wasn’t mentioned in the article was the ramifications of the interest rate reduction and the money tsunami that intervened in the markets. Check your history. I am certain that you will find that both the Dot.com bust and the Housing Bubble that followed had their beginnings in the LCTM Bailout.”

Thanks for all your thoughts in these volatile times. Be sure to check out the rest of the comments out there, and add your own, at the website!

Other Developments of the Day

Horrible news out of Pakistan, where Taliban militants stormed a school in Peshawar and slaughtered more than 140 students and teachers. Six militants died in the attack, which reportedly involved indiscriminate shooting of children as young as 13 and 14.

We’re starting to see some of that M&A activity I was expecting in the energy patch. Repsol SA of Spain confirmed it would buy Talisman Energy (TLM, Weiss Ratings: C-) of Canada for $8.3 billion.

The deal will dramatically boost Repsol’s output and reserves. Moreover, it was done at a 56 percent premium to TLM’s closing price the day prior. Talk about a nice payout for anyone who bottom-fished in TLM shares!

Housing starts slipped 1.6 percent in November to a seasonally adjusted annual rate of 1.03 million units. Building permit issuance dropped 5.2 percent to 1.04 million.

Boy, was that a painful Chicago Bears game to watch last night! Given my wife is from the Windy City, I could hardly “bear” to watch. Let’s see if they ditch their underperforming coach in the off-season — something that could happen at many other NFL clubs as well. This USA Today story weighs in on which guys are in jeopardy.

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{54 comments }

BrianTuesday, December 16, 2014 at 5:09 pm

With the pounding that Russia is taking, it is not inconceivable that Putin’s next step will be to take out Saudi oil. Either well planned air strikes or even a Nuke or two. Remember how Russia acted in WWII! Just a thought. But what would it do to the entire world? And who would start a nuclear war on their behalf?

As every hunter knows…a wounded bear is exponentially more dangerous than a healthy one…

cybermanTuesday, December 16, 2014 at 5:23 pm

Continuing on the WWII thought, and remembering the Germans felt completely humiliated after WWI by the West. Germany suffered severe inflation after WWI and joblessness, and these factors contributed to Hitler’s rise. Revanachist Putin (for which he is acclaimed by resentful Russians) pushed into fiscal corner with a worthless currency partly forced by Western sanctions (and yes, oils tanking – pun-), may find himself politically strengthened at home and be willing to be quite venturesome outside Russia?

w e dorsch mdTuesday, December 16, 2014 at 5:34 pm

most interesting

JoeTuesday, December 16, 2014 at 5:40 pm

We will have a repeat of the last time oil dropped like this, except this time oil is the leading indicator…other commodities will fall, then equities will fall, then gold will fall to pay margin calls, then credit markets will crash and gold will soar until the equity cycle recovers and soars to a DOW 30,000 in 2017.

If economies can feed their people, if not , then resource wars and currency failures .

Dr. Donnie SmithTuesday, December 16, 2014 at 5:55 pm

Spot on Joe!

Dick BTuesday, December 16, 2014 at 5:44 pm

Puttin should not succumb to dictatorial mandates by outside ‘leaders’ that have no better ethics than he does. Meanwhile, other countries not nearly as important or influential are feeling the pain that was meant for Puttin. Russia is and will be powerful enough to over come the the onslaught of unjustified effort to reduce it to a 3rd world power, unlike what the US did to Iraq. It is time to get on to dealing with our problems – borders, language and freedom! The radical Muslim element roaming the earth must be dealt with NOW.!

Dr. Donnie SmithTuesday, December 16, 2014 at 6:09 pm

I’m kind of curious Dick B… How do you distinguish between a radical Muslim and a non-radical Muslim…?
Seems to me they all worship the same figurehead, read the same radical book, obey the same radical laws, and want all infidels dead.
Most Muslims in this country are fearful of admitting their true beliefs because they might lose the comfy lifestyle they have come to enjoy rather than be forced to re-experience the harsh third world death, dirt, and filth they left behind in their homeland.

Dr. Donnie SmithTuesday, December 16, 2014 at 5:52 pm

Enjoying those lower gas prices at the pump…?
Looks like everyone is ignoring the loss to the Federal and state governments of the tax revenue from dramatically reduced gasoline prices…
This is going to impact the money these governments have already spent and are counting on for future largess and you can take it to the bank they are going to replace that lost revenue somehow someway…
And it’s not going to take them long to figure out how or who is going to make up the difference…

Phil W.Tuesday, December 16, 2014 at 6:29 pm

How so tax losses due to gas price declines? Last I checked, the gas taxes are charged on a per gallon basis. So even if the gas were free, the government would still get the same amount.

HYMNTuesday, December 16, 2014 at 6:15 pm

Ha our wives are from the same city, but mines a greenbay fan for years. I don’t think it was the coaches fault. Did you see them play? They were slow, on their heels. They had a C rated QB and team up against an A+. Doomed from kick off. Great time to buy Russia, nibble at oil as you say and stack silver.

Danny MTuesday, December 16, 2014 at 6:16 pm

I think it will be interesting to see who will back President Putin, I have read that Russia is now Dumping U.S. treasuries. What will the FED do , buy them secretly?, Who else will start dumping U.S.Treasuries?

Chuck BurtonTuesday, December 16, 2014 at 8:25 pm

Do you really want the Fed bucking up Russia and Putin with our printing press money?

C.W. HarrisTuesday, December 16, 2014 at 6:30 pm

M & M – Mike Larsen, This article is right-on-point with it’s insights into what is going on! Of course it’s the FED’S end to $80B/mo. Easing + OIL + international tensions + terrorism concerns that are driving deflation economies. What’s next will be more belt-tightening in the USA and Western Countries in Europe. Exchange currency values will react/adjust to higher movements of the $USD$ in 2015, as the per barrel prices of oil declines to a new normal range – est. $45/$50 pbl.. Critical will be USA political and diplomatic settlements with adversaries: Iran, Russia, Middle East, China and North Korea, to bring about Peaceful relations and sustain economic growth in the USA and these countries economies as well.

Phil W.Tuesday, December 16, 2014 at 6:42 pm

As regards football, the basic problem is there are 32 NFL teams, and not enough top notch players and coaches to go around. And with the current rules, everything depends on the qb, of which there aren’t more than a half dozen or so really good ones (and even they can put up stinkers on occasion, eg, Brady at Kansas City, Rogers at Buffalo, Manning at St. Louis). There’s almost nothing the Bears coaches can do about Cutler’s subpar play and I don’t really care attitude. Plus you can’t get rid of him either due to (a) the salary cap and the large, long term commitment made to him, and (b) who are you going to get that’s better?

Jim ReeseTuesday, December 16, 2014 at 6:59 pm

I really can’t see how Putin can start woozing with the West when his adventures in the Crimea make him so popular….at least he was popular at home. He is more likely to get tougher in his handling of foreign affairs. He can start by raising prices on the gas that he ships to Europe….before we can do anything about it….and how would Obama respond to that?….but Obama is more unpredictable than Putin………..

Chuck BurtonTuesday, December 16, 2014 at 8:31 pm

Because Mr. Obama really has no plan for action. Now Mr. Putin seems to have had his plans backfire, too. I wish we could get rid of both men before they start pulling triggers.

DougTuesday, December 16, 2014 at 7:19 pm

Crazy man, just think if we were to adjust to $60/barrel oil world wide again how much more rational our economies would be. As oil went up I heard all the complaining that nobody could afford it, the economy was going to tank. When one commodity goes berserk ie $100 or $150/barrel oil we get new winners, at least til the economy stalls. When it goes down legitimate constructive economies flourish. What I do know is inflated oil prices will eventually stall the economy, that has been historically proven. The other reality again proven by history is despots flourish on petro wealth, do I need to provide names??

ZainalhtTuesday, December 16, 2014 at 7:34 pm

Let it be; no problemlah. The price lowering is not due to less oil supply from the producer. But the oil trading crisis between Opec versus US versus Russia versus Iran versus Iraq versus Israel. Do not allow Israel to export oil to Jordan and Egypt initially and then to Europe and US.. They are the worst oil enemy. They get stronger due to their manipulation in trade, currency trading US dollar, commerce and party politics.

FredTuesday, December 16, 2014 at 7:42 pm

Yes, the daily muslim carnage is horrible. No one is outside of their aim: old, young, men, women….anything goes. http://www.thereligionofpeace.com tracks the daily slaughters (most not even reported in the press) with a running count for those morbid enough to read it.

Looks like Dow might be reaching a support level around 16,700 unless panic sets in.

bill stappTuesday, December 16, 2014 at 7:49 pm

How about the “underperforming”QB??That coach can’t go out and throw the football but he actually could probably throw it better than Cutler with his 100 m contract.

BillyTuesday, December 16, 2014 at 7:51 pm

Michael,

Based on Technical, Cyclical, Economic Fundamental, Debt, Currency and Demographic analysis, it is looking clearer and clearer as we are just in the 2nd inning of this next global equity,bond and currency crisis. In fact, given the geo-political, oil/commodity complex and currency volatility we are seeing, this NEXT correction/crash scenario could make the sub prime real estate bubble literally look like child’s play. We are in a VERY VERY VERY critical time frame, especially when you look at the Global Elite tug of war that is taking place between the Western Elites, led by the US and Britain vs. the so called Eastern Elites, co led by Russia and China and by extension Brazil, India, Iran, South Africa etc..etc..etc..

Donald LinkTuesday, December 16, 2014 at 8:09 pm

I believe, based on past actions, that we can count on this feckless administration to do, or not do, whatever will make the Russian initiated financial crisis worse. The weaker dominos will fall and Russia will do something both stupid and reckless.

Arden LeimerTuesday, December 16, 2014 at 8:19 pm

Global bailout will not help the world, all it does is sent money back to wall street which is the main reason for the U S taking war measure against almost everyone because of debt, that why there are poor countries, the U S is telling most that if you do not side with us we will ruin you as punishment

anthony gTuesday, December 16, 2014 at 8:20 pm

They are Keynes addictive. They will intervene. It will make matters worse.

PeterWTuesday, December 16, 2014 at 8:48 pm

Citizens of Western so called Democracies are taking to the streets as they are upset.

Putin’s back is to the wall, extremely foolish of the US. I think Putin will appear to do nothing for a few months.

It appears to me that the US would like to go to War, with Russia, I think they will succeed, but not on their timetable, and not in a manner as expected.

Obama will back such a War for Political Purposes.

Flat out War with Russia is off the table, as China would be forced to take the Side of Russia, unless it is Brain Dead. No one wants WWIII.

It appears North Korea has and will continue to punish Sony. The US will not agree that North Korea is behind this attack for Political Reasons.

Al HoltjeTuesday, December 16, 2014 at 8:49 pm

1998 … Fast forward to today and, it’s deja vu all over again. Russia just can’t afford to pay 17% on their debt and with oil prices putting more stress on the Russian economy, I would not rule out Putin defaulting on Russia’s debt thereby sending shock waves thru the derivatives market as it did in 1998. The question is: Can the damage be contained this time around or does it develop into an economic tsunami?

To Mike LarsenTuesday, December 16, 2014 at 9:33 pm

RE: Mike, Please forgive me for sending this Email to you about a (Different Topic) but I have a VERY important question to ask you. About your “Special Report on BLOODY
WEDNESDAY”, #1) What can I do if my wife has a (401-K) at her work. How can I protect her (401-K Plan) considering she can’t take it out???? I know the IMF has to raise the (Interest Rates) & is this due to Inflation is getting too high??? If this isn’t the reason, could you PLEASE tell me any reasons of WHY????
Thanks so much for letting all of us know this information.
Sincerely Yours, John R Stockhausen

B.V. CooperTuesday, December 16, 2014 at 9:39 pm

Gee, Mike – Since when did Turkey and Mexico move into the ranks of “friendlier nations” relative to the U.S.? I must have been absent from class the day that was taught. Except for Russia, China, Iran, and a couple of others, it’s hard to imagins two nations that have caused us more heartburn than Turkey and Mexico. They use us, bleed us, break their agreements with us, and badmouth us – and we continue to reward them. What did I miss?

JohnWednesday, December 17, 2014 at 8:33 am

You’ve got that right. Not politically correct but right on.

johnTuesday, December 16, 2014 at 9:59 pm

Atlantic City’s woes provides a wonderful opportunity for the United States and Israel. Just invite all of Israel (probably everybody there except the tiny minority who would never move – the Orthodox Jews) to move to Atlantic City. They’re surrounded by people who dislike them intensely, they would be joining (in America) the world’s most entrenched Jewish community, and they would rescue New Jersey from its present doldrums. And a big thorn in American foreign policy is no longer.

WayneTuesday, December 16, 2014 at 11:15 pm

You ain’t seen nothing yet. The markets are stupidly over inflated by the manipulators. The banks and financial fat cats have so many bad debt derivatives on their off balance sheets due to almost free fed money and bad attempted sector manipulation, they are dead broke. The world economies are going down and it can’t be stopped. Bills and margins are coming due and they can’t pay because again they squandered the money. Hang on and take steps to protect what you have folks.

Ben GohWednesday, December 17, 2014 at 3:18 am

Hi reader Wayne. It is very unhealthy to’ pour more inflammable materials to ‘ the bad equity situation. Have you shorted the financial markets whatever n is indire need to take profit just like the wall street fat cats , hedge funds, etc etc . Let the innocent parties say: we legally confirm that we have shorted the financial markets to our advantage. Nowhere in history have I ever read such declaration from entities whose actions are self-centred at the expense of the innocent retail investors. A millionaire will not make another richer. The non-millionaires n poor are the people to make the existing millionaires into billions, trillionaires, ………… no end. Capitalism without a csring heart for the masses creates poverty. The guilty n flithy rich have no shame frm the riches they have robbed from society.but I believe GOD is fair n just. He gives you more money in exchange for the years in your life or family.this is the natural order of the world as ordained.

CarlosWednesday, December 17, 2014 at 12:24 am

Venezuela Dolar revendes depend 96% from oil exports. The Maduro regime has followed the wrong economic policy started by the diseased Hugo Chavez. This has caused a real inflation rate that may reach 80% in 2014. Oil producing countries that wrongly used windfall profits from expensive oil and did not save for a rainy day will have the worst of this crisis. Consumers in oil hungry countries, especially in the USA will see the cost of their fuel tanks shrink. The question is : is it good for the world economy in the long run cheap oil prices? Will there be a recession or good times. Sometimes using the past to predict the future can be a big mistake. The economy has its own life and dynamics. Nobody can predict with certainity the results of this unique situation if we add the effect that some political conflicts in the world today have on the overall situation of world affairs.

GordonWednesday, December 17, 2014 at 1:13 am

I read your article where you comment on Thailand where I am living now. I cannot see where their currency or markets have taken big hits as you claim. Canada’s currency on the other hand is really falling. Strange Canada is close to balancing their budget while the US is 19 Trillion dollars in the hole and counting.

Ben GohWednesday, December 17, 2014 at 2:40 am

Really very informative .keep it up.tks vm.

Ben GohWednesday, December 17, 2014 at 2:50 am

Dow has been down pretty much. What is your take given your indepth research.wud appreciate cear n unshrouded analaysis on the direction of Dow which has great impact on the rest of the global markets.tks vm.

DougWednesday, December 17, 2014 at 5:14 am

With the price of oil at its current level below 65.00 PB
You are going to see drilling rig count drop by 250 rigs
Just alone in Tx, oversupply here in US has helped us
Become less energy dependent, but. Comes with a price unemployment
In the oil companies along with bank defaults
By smaller oil companies depending on
Higher oil prices, my hope is it won’t trigger larger
Financial fall out here in the US. World wide ihistory has a way of repeating
So extreme caution should be noted putting economic restrictions on Russia, the IS did
The same thing to Japan with oil in the late 30’s early 40’s
And some beleve this caused WW11. No winners in wars

This is the greatest international financial war of all times. It is the stuff of which shooting wars are created. If we get through this (and I hope we will) without a shot being fired, it will be an historic escape. Larry Edelson’s war cycle predictions are coming true in spades.

DboonWednesday, December 17, 2014 at 12:50 pm

I am a Chicago Bear fan also use to have a season ticket years ago, but Cutler is no Manning and even Manning could not win with an offensive line like they have. The QB & HB can be no better than their line.

Robert CalabroWednesday, December 17, 2014 at 4:45 pm

Dear Mike: As I said the other day, Saudi is angry at us for cozing up to Iran. They consider Iran their mortal enemy. We should not ignore the Petro dollar deal that was negotiated by Dr.. Kissenger in 1973. Saudi agreed to price their oil indollars. In exchange we agreed to guarntee that the house of Saudi. will stay in power in perpetuity.Because of our actions Saudi is developing a closer relationship with China, At the present time China is Saud’s biggest customer. The demand for oil in China is falling due to China,s economic troubles. In addition the Saud’s hope that by not cutting production, they will get our frackers to stop drilling. Saudi arabia is a wefare state. They cannot afford to keep production at these levels. They have to pay their bills. As for Putin, we should not consider cutting the Russians out of SWIFT. I believe that we have to take a step back and allow Adam Smith’s invisible hand to work! The heavy hand of government must stay on the side lines. Regards and Merry Christmas, Robert Calabro

jscmomThursday, December 18, 2014 at 4:43 am

Not sure why you keep calling Putin adversarial when the US started all this mess
by breaking Ronald Reagan’s promise to Russia stating the US and it’s
NATO alliances would not “move one inch eastward toward Russia.”
Do we know that Russia donated a 9/11 monument to us remembering
all the victims? Does anyone even know this? It’s a teardrop monument that
cries tears. Why isn’t it in New York?http://quilligrapher.hubpages.com/hub/TEAR-DROP

Mike SSaturday, December 20, 2014 at 9:44 am

Straight from the Russian Embassy in D.C.?

TerryThursday, December 18, 2014 at 1:49 pm

Concerned that the low oil prices, good for drivers and truck drivers will have a negative on the econony. Think of all the people who quit their jobs to work in the oil industry and now, with the low oil prices, may be laid off. Also, I am concerned that small oil businesses will go bankrupt and not repay the loans. Wondering if these low oil prices will be the next financial crisis and the big banks possibly failing.

Mike SSaturday, December 20, 2014 at 9:43 am

Putin marched into Crimea and the Ukraine…. How do you stop it without firing a shot? Drop the price of oil and it is done, just like Star Wars did it in 1987…. Too bad Russia produced nothing but oil and gas…. But, then again the Communists never did think much of American Capitalistic Economics, much to their demise!… :(